Fixing Global Finance is a scholarly, yet very readable book or booklet which has been written by Kavaljit Singh, the director of the Public Interest Research Centre, Delhi. This policy research institute works on finance, investment and developmental issues. His previous books include The Globalization of Finance: A Citizen's Guide (Zed Books, 1998), and Taming Global Financial Flows (Zed Books, 2000). He is also the founder of Madhyam Books, an independent publisher of books on political economy. His latest book is an example of how civil society can be informed and stimulated into action in a complex international system besides being excellent reading for policy makers and market participants. Despite some recent initiatives, the global civil society’s engagement with the governance of private capital flows is rather weak and diffused.
One of the shortcomings of the book is that no distinction is made between the monetary and financial systems. When dealing with financial crises he places between brackets “banks and currencies” as if banking crises and currency crises are can be placed on the same level as having the same properties.
Having congratulated him on his book and the strong support he received from the Governor of the Bank of India during the 2003-8 period, I invited him to comment on the TFD given that in fixing global finance the global monetary system is to be part of any financial solution because of its basic and glue-like nature.
As remarked in yesterday’s blog post it is remarkable how few people consider distinguish between monetary and financial reform and transformation. Kaviljit refers a couple of times to the dangers of developing countries holding large foreign exchange or forex reserves which they had built up as buffer against sudden capital outflows. He mentions how large forex reserves put pressure on a country’s exchange rate so that the currency appreciates, negatively affecting the competitiveness of exports. Excessive reserves could induce asset price bubbles and higher inflation by way of an excessive money supply. There are fiscal costs as well, as the authorities may lose control of monetary policy. If exchange rates were fixed as proposed in the TFD system and monitored by its global monetary authority, there would be no need to build up large forex reserves. As a matter of fact, the costly global reserve system would become a system of the past. How long will it take for government, business and civil society to push for this transformation? Why so much more suffering of billions of our fellow citizens, the disappearance and degradation of ecosystems and the increasing devastation of the climate crisis? Under what conditions will government, business and civil society take the needed transformational actions?